Can the Euro Survive?

Abstract

One of the fascinating aspects of the European debt crisis has been the resilience of the euro. For much of 2011, the euro was a key reserve currency, oblivious to the chaos ravaging European economies. Now, however, the gravity of the crisis is finally dragging down the euro. As the Euro zone debt crisis enters its third uncertain year, the question about whether the euro can survive rises. This paper argues that the euro can survive given policymakers still have in hand various tools. These tools include creating exit rules, implementing new stabilisation rules and instruments, adopting new fiscal policy, introducing conditional Eurobonds, using inflation differentials and providing more independence to the European Central Bank.

Monetary integration, soft budget constraints, and the EMU sovereign debt crises

“…These measures are intended to cope with the current and any future emergencies. Yet, to avoid sovereign debt crises in the first place, it is widely argued that policy makers must fundamentally reform the fiscal structures that underlie the European Economic and Monetary Union (EMU) (Haidar, ). There is, however, disagreement on how the EMU should be reformed as it remains unclear what factors ultimately led to the sovereign debt crises.…”